Attached files
| file | filename |
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| EX-99.1 - EXHIBIT 99.1 - Switch, Inc. | exhibit991pressreleasedate.htm |
| 8-K - FORM 8-K - Switch, Inc. | swch8-kearningsreleasefor4.htm |
August 2017
®
POWERING THE FUTURE OF THE CONNECTED WORLD®
Investor Presentation
Q4 2017
SAFE HARBOR
This presentation includes forward-looking statements. All statements contained in this presentation other than statements of historical facts, including statements
regarding future results of operations and financial position of Switch, Inc. and Switch, Ltd. (“Switch,” “we,” “us” or “our”), our business strategy and plans and our
objectives for future operations, are forward-looking statements. The words “anticipate,” believe,” “continue,” “estimate,” “expect,” “intend,” “may,” “will” and similar
expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections
about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business
operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including, without
limitation, those risks and uncertainties set forth in the “Risk Factors” section of our most recent Annual Report on Form 10-K filed with the Securities and Exchange
Commission for the year ended December 31, 2017.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity,
performance, achievements or events and circumstances reflected in the forward-looking statements will occur. We are under no duty to update any of these forward-
looking statements after the date of this presentation to conform these statements to actual results or revised expectations, except as required by law. You should,
therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this presentation. Moreover, except as
required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements contained in this
presentation.
This presentation also contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other data about our
industry. This data involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. Neither we nor any other
person makes any representation as to the accuracy or completeness of such data or undertakes any obligation to update such data after the date of this presentation.
In addition, projections, assumptions and estimates of our future performance and the future performance of the markets in which we operate are necessarily subject
to a high degree of uncertainty and risk.
This presentation contains certain supplemental financial measures that are not calculated pursuant to U.S. generally accepted accounting principles (“GAAP”). These
non-GAAP measures are in addition to, and not a substitute or superior to, measures of financial performance prepared in accordance with GAAP. A reconciliation of
non-GAAP measures to GAAP measures is contained in the appendix to this presentation.
2018
2
3
Switch IS A TECHNOLOGY INFRASTRUCTURE COMPANY
POWERING THE SUSTAINABLE GROWTH OF THE CONNECTED
WORLD
FINANCIAL HIGHLIGHTS 2017
4
• Total revenue of $378.3 million, compared to $318.4 million in 2016, an increase of 19%
• Operating income of $18.8 million, compared to operating income of $51.1 million in 2016. Operating income in 2017
includes the impact of $71.3 million in non-recurring equity-based compensation expense resulting from the
accelerated vesting of certain incentive units of Switch, Ltd. and related awards granted under Switch’s 2017 Incentive
Award Plan in connection with Switch’s initial public offering. Excluding the impact of this non-recurring
compensation expense, operating income would have increased 76.6% from 2016 to 2017.
• Net loss of $8.6 million, compared to net income of $31.4 million in 2016, which includes $84.8 million in equity-based
compensation expense in 2017 compared with $5.9 million in equity-based compensation expense in 2016.
• Adjusted EBITDA of $194.7 million, compared to $153.2 million for 2016, an increase of 27%. Adjusted EBITDA margin
of 51.5%, compared to 48.1% in 2016, an increase of 340 basis points.
• Capital expenditures of $402.6 million, compared to $287.1 million in 2016, an increase of 40% primarily due to
deployment of capital in The Core Campus in response to additional customer demand and density needs along with
additional capital expenditures to build out The Citadel Campus and The Pyramid Campus.
• Churn of 0.6% for the year ended December 31, 2017 compared with 1.1% in 2016.¹
¹ Churn is defined as a reduction in recurring revenue attributed to customer terminations or non-renewal of expired contracts, as a percentage of revenue at the beginning of the period.
FINANCIAL HIGHLIGHTS Q4 2017
5
• Total revenue of $99.3 million, compared to $81.9 million for the same quarter in 2016, an increase of 21%.
• Net loss of $60.3 million, compared to $19.8 million for the same quarter in 2016.
• Adjusted EBITDA of $51.1 million, compared to $41.0 million for the same quarter in 2016, an increase of 25%.
Adjusted EBITDA margin of 51.4%, compared to 50.0% for the same quarter in 2016, an increase of 140 basis
points.
• Capital expenditures of $118.6 million, compared to $96.6 million in the same quarter in 2016, an increase of 23%.
Capital expenditures for Q4 2017 included $23.9 million for the purchase of the Switch Pyramid building and 142
acres of land in The Pyramid Campus.
• Churn of 0.3%, compared to 1.9% for the same quarter in 2016.¹
¹ Churn is defined as a reduction in recurring revenue attributed to customer terminations or non-renewal of expired contracts, as a percentage of revenue at the beginning of the period.
The Four
Switch PRIMESTM
3 Campus Locations Operational
and 1 Under Development
Up to 12 million
Gross square feet (GSF)
Current U.S. facilities: 4M GSF
Future U.S. facilities: 8M GSF
Up to 1,185
Megawatts of power (MW)
Current U.S. facilities: 415 MW
Future U.S. facilities: 770 MW
800+
Customers
38.5%
Of revenues from top 10
customers Q4’17 YTD
0.3%
Revenue Churn ¹
Q4’17
21.3%
Revenue Growth
Q4’16 to Q4’17
24.7%
Adjusted EBITDA ² Growth
Q4’16 to Q4’17
19.1%
Cash flow yield on
invested capital
(Last 4 quarters as of Q4’17) ³
Switch COMPANY SNAPSHOT Q4 2017
¹ Churn is defined as a reduction in recurring revenue attributed to customer terminations or non-renewal of expired contracts, as a percentage of revenue at the beginning of the period.
² See Appendix for a reconciliation of Adjusted EBITDA to Net Income (Loss).
³ Cash flow yield on invested capital is defined as Adjusted EBITDA less corporate taxes and maintenance capital expenditures, divided by total assets, less cash and equivalents, construction in progress, and non-interest-bearing liabilities.
Facilities
Customer Base
Financial Profile
6
STRATEGICALLY LOCATED PRIME CAMPUSES
7
2,340,000 sq. ft. and 315 MW power
capacity
Stable climate with low-humidity
Lowest natural disaster rating
in Western U.S.
Low tax environment
100% renewable power source
Grand Rapids
Atlanta
Miami
Ashburn
New York
The Pyramid Campus
(Grand Rapids)
Designed to be the largest
datacenter campus
in the Eastern U.S.
Over 1,100,000 sq. ft. and 110
MW power capacity
Low natural disaster rating
Tax Renaissance zone
100% renewable power source
Land acquired
Campus data center designs
currently in process
Over 1,100,000 sq. ft. and 110
MW power capacity
Construction began Q4 2017
Los Angeles
Tahoe Reno
Las Vegas
Silicon
Valley
Designed to be, upon completion,
world’s largest data center
environment
TAHOE RENO 1 - Up to a 1.3mm
sq. ft. and 130 MW power capacity
TAHOE RENO 1-7 over 5,000,000
sq. ft. and 520 MW
Stable climate with low-humidity
Low tax environment
100% renewable power source
The Citadel Campus
(Reno)
The Core Campus
(Las Vegas)
The Keep Campus
(Atlanta)
Campus ¹ Year Operational
Gross Square Feet
(up to) ²
Utilization % -
By Campus ³
Utilization % -
By Available Data
Center Space ³
Power Capacity
(up to) ⁴
The Core Campus
Current: 8 Facilities ⁵
Future: 1 Facility
2003-2017
2018/2019
2,000,000
340,000
86% 91% 275 MW
40 MW
The Citadel Campus
Current: TAHOE RENO 1
Future: 7 Facilities
2016
2019+
1,360,000
5,890,000
18% 52% 130 MW
520 MW
The Pyramid Campus
Current: Switch PYRAMID
Future: 2 Facilities
2016
2019+
430,000 (Office)
220,000 (Data Center)
940,000
25% 50% 10 MW
100 MW
The Keep Campus
Future 2019 1,100,000 N/A N/A 110 MW
U.S. Total (Current)
U.S. Total (Future)
4,010,000 ft
8,270,000 ft
415 MW
770 MW
¹ SUPERNAP International has also deployed two additional data centers in Milan, Italy and Bangkok, Thailand that collectively provide up to 904,200 GSF of space, with up to 100 MW of power available to these facilities. We hold a 50% ownership interest in SUPERNAP
International
² Estimated square footage of all enclosed space at full build out
³ Utilization numbers are based on available cabinets
⁴ Defined as total power delivered to the data center at full build out
⁵ Current facilities at The Core Campus include LAS VEGAS 2, LAS VEGAS 4, LAS VEGAS 5, LAS VEGAS 7, LAS VEGAS 8, LAS VEGAS 9, LAS VEGAS 10 and LAS VEGAS 12
GROWING PORTFOLIO OF HYPERSCALE FACILITIES
8
COMPELLING FINANCIAL MODEL
9
Track Record of Organic
Top-Line Growth
84% of the increase in revenue for the year ended December 31, 2017 was attributable to growth
from existing customers, while the remaining 16% of the increase in revenue was attributable to new
customers initiating service after December 31, 2016
Predictable and Recurring
Revenue Stream
Long term licenses (3 to 5 year contracts) with ability to escalate rates
Stable monthly recurring revenue per cabinet
3-year average annual revenue churn of 0.9%
Future Growth and Margin
Expansion Drivers Driving scale provides efficiencies and margin expansion
Capital Efficient Growth
Patent-protected technology enables just-in-time capex deployment and low cost construction
Vertical integration creates additional capex savings
Low maintenance capex – 1.2% of revenue in 2017
Low Capital at Risk Switch MOD® enables the company to build and open new sectors to meet customer demand
$95
$112
$142
$153
$195
2013A 2014A 2015A 2016A ² 2017A
HISTORY OF ORGANIC GROWTH (IN $ MILLIONS)
¹ See Appendix for a reconciliation of Adjusted EBITDA to Net Income (Loss).
² 2016 Adj. EBITDA includes front loaded costs to open Citadel Campus and Pyramid Campus.
Adjusted EBITDA ¹
$167
$207
$266
$318
$378
2013A 2014A 2015A 2016A 2017A
10
Revenue
$ 40 $ 57 $ 73 $ 31 $(9)Net Income (loss)
2017 REVENUE & ADJUSTED EBITDA VS. 2016
11
Revenue & Adjusted EBITDA Performance
FY 2017
Actual
FY 2016
Actual
Revenue $378.3 $318.4
Adj. EBITDA $194.7 $153.2
YOY Actual Revenue Growth % 18.8%
YOY Actual Adj. EBITDA Growth % 27.1%
$378.3
$318.4
$194.7
$153.2
$0
$50
$100
$150
$200
$250
$300
$350
$400
($
m
ill
io
ns
)
QUARTERLY 2017 REVENUE VS. 2016
12
Quarterly Revenue Performance
Q1 Q2 Q3 Q4
2017 Actual Revenue $89.2 $92.1 $97.7 $99.3
2016 Actual Revenue $74.0 $80.8 $81.7 $81.9
YOY % Growth 20.5% 13.9% 19.6% 21.3%
$89.2
$92.1
$97.7 $99.3
$74.0
$80.8 $81.7 $81.9
$0
$20
$40
$60
$80
$100
($
m
ill
io
ns
)
13
Quarterly Adj. EBITDA Performance
QUARTERLY 2017 ADJ. EBITDA VS. 2016
Q1 Q2 Q3 Q4
2017 Actual Adj. EBITDA $47.1 $46.8 $49.7 $51.1
2016 Actual Adj. EBITDA $37.6 $40.0 $34.6 $41.0
YOY % Growth 25.1% 17.0% 43.8% 24.7%
$47.1 $46.8
$49.7 $51.1
$37.6
$40.0
$34.6
$41.0
$0
$10
$20
$30
$40
$50
$60
($
m
ill
io
ns
)
Q4 NEW CUSTOMERS HIGHLIGHTS BY INDUSTRY
14
• Over 400 contracts signed in Q4 2017 for new services, renewals, and expansions
• Over 100 new customers in 2017; 18 of those in Q4 2017
Industry Description
Retail & Consumer Goods Global home appliances company
Retail & Consumer Goods Leading marine robotics company
Retail & Consumer Goods Leading lawn, garden and pet supplies company
Cloud, IT & Software Global cyber security company
Cloud, IT & Software Leading software programming company
Cloud, IT & Software Leading encryption and authentication services company
Government & Utilities Major California public utility company
Healthcare Leading non-profit transfusion medicine company
Healthcare Major healthcare and social services company
Healthcare Major diagnostic healthcare products manufacturer
Digital Content & Multi-Media Entertainment Website and online marketing company
Education Education services company
CUSTOMER REVENUE & RECURRING REVENUES (IN $ MILLIONS)
15
¹ Recurring Revenue is comprised of (1) colocation, which includes the licensing of cabinet space and power; and (2) connectivity services. We consider these services recurring because our customers are generally billed on a
fixed and recurring basis each month for the duration of their contract. Non-recurring revenue, is primarily comprised of installation services related to a customer’s initial deployment. These services are non-recurring because they
are typically billed once, upon completion of the installation.
Customer Revenue
Revenue ¹
Category Q4 2017 Q4 2016 Growth (%) FY 2017 FY 2016 Growth (%)
Colocation $79.8 $66.0 20.8% $304.7 $259.0 17.6%
Connectivity $17.7 $14.1 25.4% $67.7 $53.7 26.0%
Other $1.9 $1.8 5.2% $5.9 $5.6 4.9%
Total $99.3 $81.9 21.3% $378.3 $318.4 18.8%
Category Q4 2017
% of
Revenue Q4 2016
% of
Revenue FY 2017
% of
Revenue FY 2016
% of
Revenue
Recurring $96.9 97.6% $80.8 98.7% $369.9 97.8% $308.2 96.8%
Non-
Recurring
$2.4 2.4% $1.1 1.3% $8.3 2.2% $10.2 3.2%
Total $99.3 100.0% $81.9 100.0% $378.3 100.0% $318.4 100.0%
REVENUE GROWTH & CHURN (IN $ MILLIONS)
16¹ Churn is defined as a reduction in recurring revenue attributed to customer terminations or non-renewal of expired contracts, as a percentage of revenue at the beginning of the period.
Existing vs. New Customer Revenue Growth
Customer Type Q4 2017 2017
% of Revenue Growth From New Customers 23% 16%
% of Revenue Growth From Existing Customers 77% 84%
Churn ¹
2017 CAPITAL EXPENDITURES & CAMPUS HIGHLIGHTS
(IN $ MILLIONS)
17
• The Core Campus:
• Opened LAS VEGAS 12 and 2 new sectors in LAS VEGAS 10
• Added power and cooling infrastructure to support 20MW of
additional capacity
• Site development costs for future LAS VEGAS 11 which is
expected to add another 340,000/GSF to Switch’s portfolio when
opened
Campus Highlights
• The Pyramid Campus:
• Opened new sector
• Power and cooling infrastructure to support 10MW of capacity
• Exercised purchase option for the Pyramid building and 142
acres of land
• The Keep Campus:
• Site development costs for the land where first building is
expected to open in 2019
• Maintenance Capex was $4.6 million for 2017, which represents 1.2%
of revenue
• The Citadel Campus:
• Opened 2 new sectors
• Added power and cooling infrastructure to support 10MW of new
capacity
2017 Capital Expenditures
2017 Total Capex of $402.6
DEVELOPMENT MILESTONES
18
Development Milestones
Target Date MW Increase (Up To) GSF Capacity (Up To)
The Core Campus
LAS VEGAS 10 Power System 2 Q1 2018 10 MW -
LAS VEGAS 10 Sector 1 Q2 2018 - 110,000
LAS VEGAS 10 Power System 1 Q4 2018 10 MW -
LAS VEGAS 11 Sector 1 & Power System 1 Q4 2018/Q1 2019 10 MW 110,000
The Citadel Campus
TAHOE RENO 1 Sectors 6 & 7 Q2 2018 - 120,000
TAHOE RENO 1 Power System 6 Q2 2018 10 MW -
TAHOE RENO 1 Substation Q2 2018 - -
The Pyramid Campus
PYRAMID 1 Area B - Sector 2 Q3 2018 - 48,000
PYRAMID 1 Area C - Sector 3 Q1 2019 - 60,000
The Keep Campus
ATLANTA 1 Sector 1 & Power System 1 2019 10 MW 110,000
DEBT & LIQUIDITY(IN $ MILLIONS)
19¹ Liquidity defined as: Remaining undrawn revolver capacity plus cash & cash equivalents
Debt & Liquidity ¹
12/31/2017
Capital Leases $22
Other Debt $592
Less: Cash & Cash Equivalents ($265)
Net Debt $349
LQA Adjusted EBITDA $204
Net Debt / LQA Adjusted EBITDA 1.7x
Liquidity $765
FULL YEAR 2018 GUIDANCE SUMMMARY (IN $ MILLIONS)
20
Financial Metric 2017 Results
2018 Guidance
Low High
Revenue $378.3 $423 $440
Adjusted EBITDA¹ $194.7 $216 $224
Capital Expenditures $402.6 $260 $310
¹ Switch does not provide reconciliations for the non-GAAP financial measures included in the 2018 guidance above due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such
reconciliations, including net income (loss), accelerated depreciation, impairment charges, gains or losses on retirement of debt and variations in effective tax rate, which are difficult to predict and estimate and are primarily
dependent on future events, but which are excluded from Switch's calculations of Adjusted EBITDA
APPENDIX
21
NON-GAAP FINANCIAL MEASURES
22
To supplement Switch’s condensed consolidated financial statements, which are prepared and presented in accordance
with generally accepted accounting principles in the United States (GAAP), Switch uses Adjusted EBITDA, Adjusted
EBITDA margin and recurring revenue, which are non-GAAP measures, in this presentation. Switch defines Adjusted
EBITDA as net income (loss) adjusted for interest expense, interest income, income taxes, depreciation and amortization
and for specific and defined supplemental adjustments to exclude (i) non-cash equity-based compensation expense; (ii)
equity in net earnings (losses) of investments; and (iii) certain other items that Switch believes are not indicative of its
core operating performance. Switch defines Adjusted EBITDA margin as Adjusted EBITDA divided by revenue.
The presentation of these financial measures is not intended to be considered in isolation or as a substitute for, or
superior to, financial information prepared and presented in accordance with GAAP. Investors are cautioned that there
are material limitations associated with the use of non-GAAP financial measures as an analytical tool. These measures
may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison
purposes. In addition, the non-GAAP measures exclude certain recurring expenses that have been and will continue to be
significant expenses of Switch’s business.
Switch believes these non-GAAP financial measures provide useful information to investors and others in understanding
and evaluating its operating results, enhancing the overall understanding of its past performance and future prospects,
and allowing for greater transparency with respect to key financial metrics used by its management in financial and
operational-decision making.
August 2017
®
POWERING THE FUTURE OF THE CONNECTED WORLD®
Investor Presentation
Q4 2017
2013-2017 ADJUSTED EBITDA RECONCILIATION (IN $
MILLIONS)
24
Adjusted EBITDA Reconciliation 2013 2014 2015 2016 2017
Net income $ 40 $ 57 $ 73 $ 31 $(9)
(+) Interest Expense 6 7 8 11 25
(+) Interest Income (0) (1) (0) (0) (1)
(+) Depreciation and Amortization 35 44 55 67 89
(+) Loss on disposal of property and equipment - 1 1 2 1
(+) Impact fee expense - - - 27 1
(+) Equity-based compensation 13 4 5 6 85
(+) Equity in (net earnings) loss of investments 0 1 (1) 10 1
(+) Loss on extinguishment of debt 2 - 0 - 4
(+) Gain on sale of asset - - (0) - -
(+) Gain on lease termination - - - (3) -
(+) Impairment of notes and interest receivable - - - 2 -
(+) Income tax benefit - - - - (1)
Adjusted EBITDA $ 95 $ 112 $ 142 $ 153 $ 195
2016-2017 ADJUSTED EBITDA RECONCILIATION BY QUARTER
(IN $ MILLIONS)
25
Adjusted EBITDA Reconciliation Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017
Net income $17 $19 $16 ($20) $20 $15 $16 ($60)
(+) Interest Expense 2 2 2 4 4 5 9 7
(+) Interest Income (0) 0 (0) (0) (0) (0) (0) (1)
(+) Depreciation and Amortization 15 16 16 19 20 22 23 24
(+) Loss on disposal of property and equipment 0 0 0 1 0 0 (0) 1
(+) Impact fee expense - - - 27 - - - 1
(+) Equity-based compensation 2 1 1 1 2 1 1 80
(+) Equity in (net earnings) loss of investments 1 1 1 6 0 0 0 0
(+) Loss on extinguishment of debt - - - - - 4 - -
(+) Gain on sale of asset - - - - - - - -
(+) Gain on lease termination - - (3) - - - - -
(+) Impairment of notes and interest receivable - - - 2 - - - -
(+) Income tax benefit - - - - - - - (1)
Adjusted EBITDA $ 38 $ 40 $ 35 $ 41 $ 47 $ 47 $ 50 $ 51
